Tax Increases and Prudential Judgment: When are They High Enough?

In his post earlier today, my colleague Rob Vischer provocatively proposes that "a good Catholic cannot rule out tax increases in today's fiscal climate" and confesses that he finds the anti-tax camp "more infuriating" than the anti-government spending cuts camp.  In the end, though, Rob acknowledges that taxing and spending debates fall into the realm of prudential judgment.

Considering only one aspect of those practical, real-world, economic factors, we have compelling evidence just today that the zenith for what counts as a reasonable tax rate plainly has been reached here in Minnesota.  Today's editorial from the consistently left-leaning Minneapolis Star-Tribune is headlined:  "Dayton plan misses competitive reality."

If Minnesota were an economic island, the call for tax fairness across income lines that Gov. Mark Dayton made with his budget-balancing proposal Tuesday would have considerable appeal in this traditionally egalitarian state.

. . .   Dayton's proposal would also give Minnesota the highest top-tier income tax rate in the nation in the next three years . . . .

And the total size of his proposed new taxes appears likely to rank at or near the top this year among the 50 states.

Dayton's proposal is true to this state's 20th-century preference for taxation based on ability to pay. But Minnesota is not an economic island.

The rigors of the 21st-century economy demand that the state leaven its egalitarian impulses with the imperatives imposed by worldwide competition for highly mobile capital and talent. Most states have tax systems more regressive than Minnesota's.

What Dayton proposes would make Minnesota an outlier, at a time when the penalty for a reputation as a high-tax state is large and growing.

At what point are taxes high enough?  Well, the Minneapolis Star-Tribune opines that the new Democratic governor's tax increase proposals are dangerous to the economy and likely to frighten away new capital investment in the state -- an editorial I would not have expected to read in that newspaper until the flames of Hell had been suffocated beneath deep drifts of Minnesota-style snow.  Sometimes prudential judgment becomes a prudential imperative.  In Minnesota at least, we've reached that point.